The used car market is hot right now, but I still have a good offer. Here is how

Know your credit history. Know the value of your trade-in. And know how to say no.

Armed with this knowledge and willingness to negotiate, I recently bought a used car – and saved myself thousands of dollars by pushing for better terms and rejecting unnecessary maintenance plans.

When looking for a used car, here are some things you need to know in order to get the best deal possible.

The used car market is hot right now

One might assume that record unemployment, travel restrictions, and the introduction of home office policies would also lead to a decline in car sales as fewer people drive these days.

But the opposite is true.

Between the liquidation of assets by rental car companies and the lucrative funding incentives made possible by record low interest rates, the demand for and prices for used cars have risen dramatically.

Even so, I recently started looking for a deal and bought a car for the first time since 2009. It was finally time to upgrade my family’s 14 year old vehicle to a more attractive and reliable 2 year old model. Some aspects of my experience were the same as 11 years ago and others were completely different.

Haggling is taboo

The last time I bought a car, I was well prepared with offers to lower the sticker price – and the seller was ready to negotiate with me. But this time there was little room to haggle with the saleswoman. She knew the car was in good shape, was in high demand and that if I didn’t buy it, someone else would. She even told me long in advance that the internet price was inflexible and already discounted.

That does not mean that there are no opportunities to save.

When trading a vehicle, your focus is to get the maximum value for that trade-in. You shouldn’t just research the approximate cost of the vehicle you’re buying; You should also research what the vehicle you are trading in is being sold for in the market. The more you get for your trade-in vehicle, the less you have to finance or pay out of pocket for your new car.

To find the best estimate of the value of your current car, check out the Kelley Blue Book, the most widely cited used vehicle appraiser.

Unless you are selling a vehicle, it is best to have backup plans for the model and year of manufacture of the car you plan to buy. For vehicles with higher mileage, minor defects or older models, you can expect to find a better deal. You can find your best deals on previously leased vehicles that are at least three years old and have relatively low mileage.

Know your creditworthiness – and the rates you are entitled to

Car dealerships don’t just make money selling cars. They also make money funding vehicles for buyers who don’t have the money to buy the car outright. If you want to finance a car through the dealership you need to know your credit history so that you know whether or not they are offering you competitive rates.

In my experience, the dealership offered me three possible car payments without disclosing the interest rate and before a credit check was carried out. It was only after asking to disclose the rate that I found out that it was between 6% and 7%.

I have a high credit score of 845 so these rates are way too high. After declining and applying for a credit check, they then offered significantly lower payments and rates of just 2.39%, which suited an applicant like me much better. During the life of the loan, the difference between the merchant’s original offer and the rates I actually qualified for would save me over $ 1,500 in interest payments.

I also knew what the current car loan rates were before I visited the dealership. According to, the average auto loan rate for a used vehicle for someone with high credit is currently around 4.69%.

Know what to expect, and keep in mind that dealers often add a little cushion for themselves, making them more expensive than direct credit unions or banks.

Understand service plans and warranties

When researching your car, try to get a good idea of ​​how reliable it is and what the expected running costs can be by checking rankings and reviews. Make sure your annual car budget has enough headroom for standard maintenance like oil changes, tire changes, and repairs.

This is important as dealerships may aggressively offer you service plans and extended warranties. While these plans give you the added convenience of knowing your car is protected, it also means you are paying a premium for standard maintenance that you can likely get much cheaper elsewhere. Worse still, the premium on the plans and guarantees will often be poured into the loan, which means interest will be added on top of the amount you borrowed.

Instead, you should only receive these service plans if you can pay for them in cash outside of the credit agreement. To make sure of this, simply ask the finance manager if you can pay the coverage separately. If they try to convince you to add it to your loan, stick with your guns or forego service altogether. You can always put the money you would have spent on a service plan in an interest-bearing savings account. This way, your money will grow over time and you can pull it as you need it.

Know when to say no – and when to say yes

After declining multiple offers with maintenance plans, I finally settled on a 5-year 4.9% financing plan – knowing that I will pay it off much faster.

As a rule of thumb, it is wise not to finance a car for more than three years. If you need longer term finance, it is a sign that you are buying more than you can afford. Finally, try to keep your total cost of the car – including monthly payments, insurance, and gasoline – within 10% of your net wage.

Knowing what you can afford and what a dealership shouldn’t get away with is critical.

My car purchase in 12 steps:

  1. The saleswoman was inflexible about the price. It is what it is.
  2. The dealer kept me low on my trade-in. According to the Kelley Blue Book, my old car was worth $ 1,750, but the dealer offered $ 1,000. I countered at $ 1,700 and they countered at $ 1,250.
  3. To finance the purchase, they offered an APR of between 6 and 7 percent.
  4. I told them this was ridiculous – and they came back 4.9%.
  5. I asked them to balance the low trade-in offer with a $ 500 balance. They eventually agreed to meet me for $ 1,750. Check.
  6. Surprise, surprise … they offered 4.9% APR, but only if I included a maintenance plan and service contract. I refused. My credit score is 845 … do better.
  7. We went back and forth on four, five, and six year funding plans. I focused on payments, NOT prices.
  8. Finance manager swapped. I drained the other guy so they sent “the brother” into the room.
  9. New guy offered me 2.39% APR, but only if I have a maintenance plan. I refused … again.
  10. We agreed on a 5 year funding plan of 4.9% that I will probably pay off in 12 months. About that.
  11. The phone number and address were incorrect on several documents. It took another 30 minutes to reprint them all.
  12. Final deal. A simple loan, no frills, no whistling, no plans. $ 10,000 off.